By Vaughan Granier
On 1 April 2021, the adult minimum wage will rise to $20.00 per hour which is an increase of $1.10 per hour from the current minimum wage at $18.90.
Training and starting-out wages will increase to $16.00 per hour (up from $15.12 per hour) to remain at 80 per cent of the minimum wage.
Here are four things to think about as you prepare your business for the upcoming wage increase:
1. Send variation letters to affected employees
All employees earning the adult minimum wage of $18.90 per hour must be paid at a new rate, that’s no less than $20.00 per hour, from 1 April.
You’ll need to let your minimum wage employees know about their pay increase on 1 April with a written variation to their agreement. You can send this by email or letter.
It may seem like an obvious question but, have you checked in with whoever manages your payroll system to ensure they’re ready for the changes?
Even automated payroll systems can make mistakes. And, if you’re still running off a paper-based or manual payroll process, then you must be confident that the wage calculations are correct from 1 April.
3. Employment agreements
Are all your employment agreements up to date? Sometimes, in the process of reviewing who’s on minimum wage, you can uncover contracts that are no longer current. If this happens, don’t panic! It’s a great opportunity to get your record-keeping up to date (and at least you found them, and not the Labour Inspectorate!).
4. Managing employee pay relativity
The upcoming minimum wage increase only legally applies to the minimum rate of pay – there’s no requirement that every single employee receives a $1.10 wage increase.
However, you may have some workers who are already earning $20.00 an hour ($1.10 more than the current minimum wage of $18.90). These employees will fall into the minimum pay rate bracket following the increase on 1 April. Despite there being no legal requirement to provide a pay rise here, this can raise issues about how more adept employees are paid compared to less qualified or experienced workers.
For example, an employee already earning $20.00, who suddenly makes the same income as a less skilled colleague, may feel resentful or frustrated that your company isn’t recognising their seniority or capability. Employees in this situation may be keen to negotiate a pay increase to maintain the relative pay difference.
In determining a strategy for managing pay relativity, it’s essential to manage affordability, properly understand workforce expectations, and manage them proactively.
Again, there’s no legal obligation to increase the pay rate for anyone earning at least $20.00 an hour already. But, with an eye on employee morale and workplace dynamics, you could consider the following if pay relativity comes up:
- Increasing an employee’s $20.00 an hour wage by $1.10 an hour (to maintain the relative difference between their salaries and the minimum wage).
- Increase an employee’s rate by an amount that keeps a differential rate and is reflective of individual ability and performance. You’d need to substantiate this increase through a performance review.
- If remuneration increases are not affordable for your business at this time, are there other non-cash benefits you can offer your more experienced workers, such as mentoring or training and development opportunities?
All minimum pay changes must appear in the next pay slip after 1 April 2021. It’s possible to delay the increase; for example, if the administrative load makes it impossible to meet the deadline. But you’d still be required to backpay affected employees to 1 April as soon as possible. You should proactively communicate this to your staff if you find yourself in this situation.
As an employer, you’ll need to keep up to date with the latest minimum pay changes and pay all your employees at least the minimum wage. This year’s pay increases may introduce significantly greater wage costs to your business. In this case, you may also want to think about pricing strategies and budget forecasting to account for your higher wage and holiday pay obligations.
Would you like more advice on preparing your business for the minimum wage changes on 1 April? Contact our friendly team of experts at HR Assured for a complimentary consultation – we’d love to help!
Vaughan Granier is the National Workplace Relations Manager for HR Assured NZ. He has over 24 years’ experience in international human resources, health and safety, and workplace relations management. With over 10 years working in New Zealand and Australian companies, he provides in-depth support to leadership teams across all areas of HR, Health and Safety, and employee management.